On this page of StockholderLetter.com we present the 10/19/2023 shareholder letter from MICROSOFT CORP — ticker symbol MSFT. Reading current and past MSFT letters to shareholders can bring important insights into the investment thesis.

Dear shareholders, colleagues, customers, and partners, We are living through a time of historic challenge and opportunity. As I write this, the world faces ongoing economic, social, and geopolitical volatility. At the same time, we have entered a new age of AI that will fundamentally transform productivity for every individual, organization, and industry on earth, and help us address some of our most pressing challenges. This next generation of AI will reshape every software category and every business, including our own. Forty-eight years after its founding, Microsoft remains a consequential company because time and time again from PC/Server, to Web/Internet, to Cloud/Mobile we have adapted to technological paradigm shifts. Today, we are doing so once again, as we lead this new era. Amid this transformation, our mission to empower every person and every organization on the planet to achieve more remains constant. As a company, we believe we can be the democratizing force for this new generation of technology and the opportunity it will help unlock for every country, community, and individual, while mitigating its risks. Here are just a few examples of how we are already doing this: Leading electronic health records vendor Epic is addressing some of the biggest challenges facing the healthcare industry today including physician burnout by deploying a wide range of copilot solutions built on Azure OpenAI Service and Dragon Ambient eXperience Copilot. Mercado Libre is reducing the time its developers spend writing code by more than 50 percent with GitHub Copilot, as the company works to democratize e-commerce across Latin America. Mercedes-Benz is making its in-car voice assistant more intuitive for hundreds of thousands of drivers using ChatGPT via the Azure OpenAI Service. Lumen Technologies is helping its employees be more productive, enabling them to focus on higher valueadded activities, by deploying Microsoft 365 Copilot. Nonprofit The Contingent is matching foster families with children in need using Dynamics 365, Power BI, and Azure, with an eye on using AI to amplify its work across the US. And, Taiwan s Ministry of Education has built an online platform to help elementary and high school students learn English using Azure AI. To build on this progress, we remain convicted on three things: First, we will maintain our lead as the top commercial cloud while innovating in consumer categories, from gaming to professional social networks. Second, because we know that maximum enterprise value gets created during platform shifts like this one, we will invest to accelerate our lead in AI by infusing this technology across every layer of the tech stack. And, finally, we will continue to drive operating leverage, aligning our cost structure with our revenue growth. As we make progress on these priorities, we delivered strong results in fiscal year 2023, including a record $211 billion in revenue and over $88 billion in operating income. A NEW ERA OF AI There are two breakthroughs coming together to define this new era of AI. The first is the most universal interface: natural language. The long arc of computing has, in many ways, been shaped by the pursuit of increasingly intuitive human-computer interfaces keyboards, mice, touch screens. We believe we have now arrived at the next big step forward natural language and will quickly go beyond, to see, hear, interpret, and make sense of our intent and the world around us. 1
The second is the emergence of a powerful new reasoning engine. For years, we ve digitized daily life, places, and things and organized them into databases. But in a world rich with data, what has been most scarce is our ability to reason over it. This generation of AI helps us interact with data in powerful new ways from completing or summarizing text, to detecting anomalies and recognizing images to help us identify patterns and surface insights faster than ever. Together, these two breakthroughs will unlock massive new opportunity. And, in fact, just last month we announced our vision for Copilot, an everyday AI companion. We are building Copilot into all our most used products and experiences and allowing people to summon its power as a standalone app as well. Just like you boot up an OS to access applications or use a browser to visit websites today, our belief is that you will invoke a Copilot to do all those activities and more: to shop, to code, to analyze, to learn, to create. As a company, any time we approach a transition like this, we do so responsibly. We believe AI should be as empowering across communities as it is powerful, and we re committed to ensuring it is responsibly built and designed, with safety in mind from the outset. OUR OPPORTUNITY Every customer solution area and every layer of our tech stack will be reimagined for the AI era. And that s exactly what we ve already begun to do: Infrastructure Four years ago, we first invested in our AI supercomputer, with a goal of building the best cloud for training and inference. Today, it s being used by our partner OpenAI to power its best-in-class foundation models and services, including one of the fastest-growing consumer apps ever ChatGPT. NVIDIA, as well as leading AI startups like Adept and Inflection, is also using our infrastructure to build its own breakthrough models. More broadly, organizations continue to choose our ubiquitous computing fabric from cloud to edge to run their mission-critical applications. We continued to see more cloud migrations to Azure this past fiscal year, as it remains early when it comes to the long-term cloud opportunity. And we also continue to lead in hybrid computing with Azure Arc, which now has 18,000 customers. Data and AI Every AI app starts with data, and having a comprehensive data and analytics platform is more important than ever. Our Intelligent Data Platform brings together operational databases, analytics, and governance so organizations can spend more time creating value and less time integrating their data estate. We also introduced Microsoft Fabric this year, which unifies compute, storage, and governance with a disruptive business model. With Azure AI, we are making foundation models available as platforms to our customers. We offer the best selection of industry-leading frontier and open models. In January, we made the Azure OpenAI Service broadly available, bringing together advanced models, including ChatGPT and GPT-4, with the enterprise capabilities of Azure. More than 11,000 organizations across industries are already using it for advanced scenarios like content and code generation. Meta chose us this summer as its preferred cloud to commercialize its Llama family of models. And, with Azure AI Studio, we provide a full lifecycle toolchain customers can use to ground these models on their own data, create prompt workflows, and help ensure they are deployed and used safely. Digital and app innovation GitHub Copilot is fundamentally transforming developer productivity, helping developers complete coding tasks 55 percent faster. More than 27,000 organizations have chosen GitHub Copilot for Business, and to date more than 2
1 million people have used GitHub Copilot to code faster. We also announced our vision for the future of software development with GitHub Copilot X, which will bring the power of AI throughout the entire software development lifecycle. All up, GitHub surpassed $1 billion in annual recurring revenue for the first time this fiscal year. We re also applying AI across our low-code/no-code toolchain to help domain experts across an organization automate workflows, create apps and webpages, build virtual agents, or analyze data, using just natural language with copilots in Power Platform. More than 63,000 organizations have used AI-powered capabilities in Power Platform to date. Business applications We are bringing the next generation of AI to employees across every job function and every line of business with Dynamics 365 Copilot, which works across CRM and ERP systems to reduce burdensome tasks like manual data entry, content generation, and notetaking. In fact, our own support agents are using Copilot in Dynamics 365 Customer Service to resolve more cases faster and without having to call on peers to help. With our Supply Chain Platform, we re helping customers apply AI to predict and mitigate disruptions. And, with our new Microsoft Sales Copilot, sellers can infuse their customer interactions with data from CRM systems including both Salesforce and Dynamics to close more deals. All up, Dynamics surpassed $5 billion in revenue over the past fiscal year, with our customer experience, service, and finance and supply chain businesses each surpassing $1 billion in annual sales. Industry Across industries, we are rapidly becoming the partner of choice for any organization looking to generate real value from AI. In healthcare, for example, we introduced the world s first fully automated clinical documentation application, DAX Copilot. The application helps physicians reduce documentation time by half, freeing them to spend more time face to face with patients. And Epic will integrate it directly into its electronic health records system. And, in retail, we introduced new tools to help companies manage their day-to-day operations and digitize their physical stores. Modern work We are rapidly evolving Microsoft 365 into an AI-first platform that enables every individual to amplify their creativity and productivity, with both our established applications like Office and Teams, as well as new apps like Designer, Stream, and Loop. Microsoft 365 is designed for today s digitally connected, distributed workforce. This year, we also introduced a new pillar of customer value with Microsoft 365 Copilot, which combines nextgeneration AI with business data in the Microsoft Graph and Microsoft 365 applications to help people be more productive and unleash their creativity at work. Just last month, I was excited to announce that we will make Microsoft 365 Copilot generally available to our commercial customers later this year. We continue to build momentum in Microsoft Teams across collaboration, chat, meetings, and calls. We introduced a new version of Teams that delivers up to two times faster performance, while using 50 percent less memory. We also introduced Teams Premium to meet enterprise demand for AI-powered features like intelligent meeting recaps. All up, Teams usage surpassed 300 million monthly active users this year. With Microsoft Viva, we have created a new category for employee experience. Copilot in Viva offers leaders a new way to build high-performance teams by prioritizing both productivity and employee engagement. This year, Viva surpassed 35 million monthly active users. 3
 • shareholder letter icon 10/19/2023 Letter Continued (Full PDF)
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MSFT 10/19/2023 Shareholder/Stockholder Letter Transcript:



Dear shareholders, colleagues, customers, and partners,
We are living through a time of historic challenge and opportunity. As I write this, the world faces ongoing economic,
social, and geopolitical volatility. At the same time, we have entered a new age of AI that will fundamentally
transform productivity for every individual, organization, and industry on earth, and help us address some of our
most pressing challenges.
This next generation of AI will reshape every software category and every business, including our own. Forty-eight
years after its founding, Microsoft remains a consequential company because time and time again   from PC/Server,
to Web/Internet, to Cloud/Mobile   we have adapted to technological paradigm shifts. Today, we are doing so once
again, as we lead this new era.
Amid this transformation, our mission to empower every person and every organization on the planet to
achieve more remains constant. As a company, we believe we can be the democratizing force for this new
generation of technology and the opportunity it will help unlock for every country, community, and individual, while
mitigating its risks.
Here are just a few examples of how we are already doing this:

Leading electronic health records vendor Epic is addressing some of the biggest challenges facing the
healthcare industry today   including physician burnout   by deploying a wide range of copilot solutions
built on Azure OpenAI Service and Dragon Ambient eXperience Copilot.

Mercado Libre is reducing the time its developers spend writing code by more than 50 percent with GitHub
Copilot, as the company works to democratize e-commerce across Latin America.

Mercedes-Benz is making its in-car voice assistant more intuitive for hundreds of thousands of drivers using
ChatGPT via the Azure OpenAI Service.

Lumen Technologies is helping its employees be more productive, enabling them to focus on higher valueadded activities, by deploying Microsoft 365 Copilot.

Nonprofit The Contingent is matching foster families with children in need using Dynamics 365, Power BI,
and Azure, with an eye on using AI to amplify its work across the US.

And, Taiwan   s Ministry of Education has built an online platform to help elementary and high school
students learn English using Azure AI.
To build on this progress, we remain convicted on three things: First, we will maintain our lead as the top commercial
cloud while innovating in consumer categories, from gaming to professional social networks. Second, because we
know that maximum enterprise value gets created during platform shifts like this one, we will invest to accelerate our
lead in AI by infusing this technology across every layer of the tech stack. And, finally, we will continue to drive
operating leverage, aligning our cost structure with our revenue growth.
As we make progress on these priorities, we delivered strong results in fiscal year 2023, including a record
$211 billion in revenue and over $88 billion in operating income.
A NEW ERA OF AI
There are two breakthroughs coming together to define this new era of AI. The first is the most universal interface:
natural language. The long arc of computing has, in many ways, been shaped by the pursuit of increasingly intuitive
human-computer interfaces   keyboards, mice, touch screens. We believe we have now arrived at the next big step
forward   natural language   and will quickly go beyond, to see, hear, interpret, and make sense of our intent and the
world around us.
1

The second is the emergence of a powerful new reasoning engine. For years, we   ve digitized daily life, places, and
things and organized them into databases. But in a world rich with data, what has been most scarce is our ability to
reason over it. This generation of AI helps us interact with data in powerful new ways   from completing or
summarizing text, to detecting anomalies and recognizing images   to help us identify patterns and surface insights
faster than ever.
Together, these two breakthroughs will unlock massive new opportunity. And, in fact, just last month we announced
our vision for Copilot, an everyday AI companion. We are building Copilot into all our most used products and
experiences and allowing people to summon its power as a standalone app as well. Just like you boot up an OS to
access applications or use a browser to visit websites today, our belief is that you will invoke a Copilot to do all those
activities and more: to shop, to code, to analyze, to learn, to create.
As a company, any time we approach a transition like this, we do so responsibly. We believe AI should be as
empowering across communities as it is powerful, and we   re committed to ensuring it is responsibly built and
designed, with safety in mind from the outset.
OUR OPPORTUNITY
Every customer solution area and every layer of our tech stack will be reimagined for the AI era. And that   s exactly
what we   ve already begun to do:
Infrastructure
Four years ago, we first invested in our AI supercomputer, with a goal of building the best cloud for training and
inference. Today, it   s being used by our partner OpenAI to power its best-in-class foundation models and services,
including one of the fastest-growing consumer apps ever   ChatGPT. NVIDIA, as well as leading AI startups like
Adept and Inflection, is also using our infrastructure to build its own breakthrough models.
More broadly, organizations continue to choose our ubiquitous computing fabric   from cloud to edge   to run their
mission-critical applications. We continued to see more cloud migrations to Azure this past fiscal year, as it remains
early when it comes to the long-term cloud opportunity. And we also continue to lead in hybrid computing with
Azure Arc, which now has 18,000 customers.
Data and AI
Every AI app starts with data, and having a comprehensive data and analytics platform is more important than ever.
Our Intelligent Data Platform brings together operational databases, analytics, and governance so organizations can
spend more time creating value and less time integrating their data estate. We also introduced Microsoft Fabric this
year, which unifies compute, storage, and governance with a disruptive business model.
With Azure AI, we are making foundation models available as platforms to our customers. We offer the best
selection of industry-leading frontier and open models. In January, we made the Azure OpenAI Service broadly
available, bringing together advanced models, including ChatGPT and GPT-4, with the enterprise capabilities of
Azure. More than 11,000 organizations across industries are already using it for advanced scenarios like content and
code generation. Meta chose us this summer as its preferred cloud to commercialize its Llama family of models. And,
with Azure AI Studio, we provide a full lifecycle toolchain customers can use to ground these models on their own
data, create prompt workflows, and help ensure they are deployed and used safely.
Digital and app innovation
GitHub Copilot is fundamentally transforming developer productivity, helping developers complete coding tasks
55 percent faster. More than 27,000 organizations have chosen GitHub Copilot for Business, and to date more than
2

1 million people have used GitHub Copilot to code faster. We also announced our vision for the future of software
development with GitHub Copilot X, which will bring the power of AI throughout the entire software development
lifecycle. All up, GitHub surpassed $1 billion in annual recurring revenue for the first time this fiscal year.
We   re also applying AI across our low-code/no-code toolchain to help domain experts across an organization
automate workflows, create apps and webpages, build virtual agents, or analyze data, using just natural language
with copilots in Power Platform. More than 63,000 organizations have used AI-powered capabilities in Power
Platform to date.
Business applications
We are bringing the next generation of AI to employees across every job function and every line of business with
Dynamics 365 Copilot, which works across CRM and ERP systems to reduce burdensome tasks like manual data
entry, content generation, and notetaking. In fact, our own support agents are using Copilot in Dynamics 365
Customer Service to resolve more cases faster and without having to call on peers to help. With our Supply Chain
Platform, we   re helping customers apply AI to predict and mitigate disruptions. And, with our new Microsoft Sales
Copilot, sellers can infuse their customer interactions with data from CRM systems   including both Salesforce and
Dynamics   to close more deals.
All up, Dynamics surpassed $5 billion in revenue over the past fiscal year, with our customer experience, service, and
finance and supply chain businesses each surpassing $1 billion in annual sales.
Industry
Across industries, we are rapidly becoming the partner of choice for any organization looking to generate real value
from AI. In healthcare, for example, we introduced the world   s first fully automated clinical documentation
application, DAX Copilot. The application helps physicians reduce documentation time by half, freeing them to spend
more time face to face with patients. And Epic will integrate it directly into its electronic health records system.
And, in retail, we introduced new tools to help companies manage their day-to-day operations and digitize their
physical stores.
Modern work
We are rapidly evolving Microsoft 365 into an AI-first platform that enables every individual to amplify their creativity
and productivity, with both our established applications like Office and Teams, as well as new apps like Designer,
Stream, and Loop. Microsoft 365 is designed for today   s digitally connected, distributed workforce.
This year, we also introduced a new pillar of customer value with Microsoft 365 Copilot, which combines nextgeneration AI with business data in the Microsoft Graph and Microsoft 365 applications to help people be more
productive and unleash their creativity at work. Just last month, I was excited to announce that we will make
Microsoft 365 Copilot generally available to our commercial customers later this year.
We continue to build momentum in Microsoft Teams across collaboration, chat, meetings, and calls. We introduced a
new version of Teams that delivers up to two times faster performance, while using 50 percent less memory. We also
introduced Teams Premium to meet enterprise demand for AI-powered features like intelligent meeting recaps. All
up, Teams usage surpassed 300 million monthly active users this year.
With Microsoft Viva, we have created a new category for employee experience. Copilot in Viva offers leaders a new
way to build high-performance teams by prioritizing both productivity and employee engagement. This year, Viva
surpassed 35 million monthly active users.
3



shareholder letter icon 10/19/2023 Letter Continued (Full PDF)
 

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